In an on-demand world, ownership is becoming a thing of the past. How can selling flexible consumption models open doors for your dealership?
In a time when everything is available on-demand, owning things is so last decade. Businesses and consumers alike are changing the way they purchase goods and services. While the shift has been going on for a long time, more sophisticated technology and cloud delivery is allowing fractional and as-a-service billing at a scale that simply wasn’t possible even a few years ago. Layer on to that trend an uncertain economic climate that is requiring businesses to focus on outcomes while limiting liabilities, and we now have jet fuel for the acceleration. It’s time to take a fresh look at how you are offering goods and services to your customers.
By transforming your product-based, transactional model to a services-based, flexible consumption model (or at least blending a FCM into your business) you can provide technology to your customers the way they want to consume and pay for it.
What is a flexible consumption model?
In its whitepaper, “The Shift to Flexible Consumption: How to Make an ‘as a Service’ Business Model Work,” Deloitte defines the flexible consumption model (also known as everything as a service, or XaaS) as “offer[ing] customers product delivery and payment options that allow them to purchase access to products as a service.” In the flexible consumption model, you aren’t changing the product that you sell — you’re just changing how you deliver it and how you get paid for it. You sell results (provide the desired outcome) without liabilities (costs and responsibility of ownership).
While many in the channel already offer MPS in their businesses, looking at technology as a service is a more holistic view of what could be on offer with an FCM model.
Three major benefits of transforming to a flexible consumption model
Dealers have been fighting tooth and nail to maintain margins and grow their businesses. The ongoing struggle has caused many to take a critical look at transforming from pushing boxes to providing true service. There are more opportunities now to earn profits by offering services and customer solutions than ever before.
Services can offer both an offensive and a defensive strategy. They can be used as a catalyst to grow revenues and profits while at the same time be a way to keep existing customers and build barriers to entry.
Businesses that can successfully transition to a flexible consumption model create predictable, renewable, sticky revenue streams; gain greater visibility into customers’ consumption habits, allowing them to enhance and cross-sell services; and deliver greater overall value to the end customer. And since the flexible consumption model enables dealers to serve each customer at scale, they can ensure healthy profit margins.
Generate recurring revenue. In transactional models, your sales teams can spend a lot of time and energy creating inaccurate forecasts. Not only does this steal time from other vital tasks, but it also means that you’re planning for the future with inaccurate data, which is going to make setting goals and measuring success difficult. Likewise, transactional models require a lot more time and energy — from your perspective and your customer’s perspective — to ensure bills are accurate. But with a flexible consumption model, forecasting and billing is much simpler. It is very clear how much money you’re going to make in a given period of time. Billing also becomes effortless for both you and your customers — services are a static, flat rate paid each month.
Deliver greater value to the customer. When you sell customers a product outright, they have to pay for everything up front and, depending on the product, make additional investments just to achieve a specific result. They also must take on a lot of additional responsibilities just to achieve a certain result. But many of your customers don’t want to purchase their own technology and equipment outright, and they certainly don’t want to take on the costs and responsibilities that come with owning that technology and equipment. They’re also not too keen on paying for features and functions that they don’t use. That’s the crux of the flexible consumption model’s value proposition to the end user: customers only pay for the result.
Leverage visibility into customer consumption patterns to grow and expand. The XaaS model also gives you unprecedented visibility into the way your customers use your product. You can analyze how they use it (and how often they use it) and use that data to show how your services are helping their business succeed, identify other growth areas your business should expand into, and cross-sell complementary products and services to grow accounts and increase stickiness.
Transforming your business to a flexible consumption model
The Deloitte study breaks out a successful transformation from a product-based, transactional model to a service-based, flexible consumption model into several important steps. Beginning with the somewhat obvious but also perhaps undervalued step of developing a plan and appointing transformation champions, it then moves on to realigning your organization to support and deliver on XaaS products, and, ultimately, to monitoring and adjusting services offerings and methods as the business evolves.
Developing a plan. Operating in a flexible consumption model might be very different from how you operate your business now. The transformation can be complex, and the journey has potential pitfalls. But with the right plan and the right people executing it, you can avoid some serious problems along the way. Your plan should address how you will manage your existing core business and new FCM offerings in tandem, which strategies you will use to convert existing customers to service models, identify what kind of technology and operational changes are required to support XaaS, and identify any need for training requirements to support the transformation. As with any organizational transformation, the initiative must be driven from the top down.
Aligning your business to enable XaaS. Deloitte notes the importance of breaking down and realigning your business’s operating model to support your transformation to a flexible consumption model. Traditional models run linearly, one step after another. You develop a product, bring it to market, and support customers. But in an FCM model, all of this is happening at once — all groups work in tandem throughout the entire customer lifecycle, and thus, need to be aligned to do so. This means creating a collaborative ecosystem wherein lines of sight, communication, and information are freely available to all.
Continuous monitoring and tweaking. The transition to a flexible consumption model is never truly over. Once the core pieces are in place, you’re going to need to keep a vigilant eye on how each service, as well as the underlying teams and technology that support them, are performing, and make adjustments to ensure that you’re hitting key metrics. You’ll also need to keep an eye out for complementary or adjacent service lines that you can — or must — incorporate into your existing offerings. Remember, the flexible consumption model is just that — a model. That model still needs to be applied to relevant technology to ensure success.
Tips from experts
It might be useful to frame the discussion with an example from an “old school” company — tire manufacturer Michelin, whose journey into services has been well-documented and frequently cited. In 2000, Michelin launched a tire management service for large European transportation companies that was initially unsuccessful, in part because users failed to see the value proposition. However, the company’s senior management believed in the services-led concept and today Michelin Fleet Solutions, an as-a-service model, is offered around the world.
Michelin Fleet Solutions’ value proposition is straightforward – customers save on tire costs and reduced fuel consumption while also encountering reduced safety risks and increased performance. However, in developing that value proposition, Michelin had to adapt to meet customer needs. Customers understand their costs better through the monthly reporting they receive, and Michelin ensures they have the right tires for efficient fuel consumption and a lower carbon footprint. There is minimal customer churn — services-based solutions are a powerful way to maximize customer loyalty over time.
Key to this success was understanding that the solution was not right for every customer; Michelin executives stressed the importance of targeting the right customer profile. This is why it’s so important that you are constantly collecting and analyzing customer data — it’s essential to understanding who your customers are and what they are likely to buy.
Customers force evolution
When a company buys a printer, they’re not doing it because they like print. They purchase a printer because it’s the most efficient way to achieve a specific result. But the printer alone won’t do it — that printer needs toner, paper, ongoing maintenance and repairs, and additional IT infrastructure to provide that result. By offering print products — along with any other office technology that you sell — as a service, you provide your customer with the result without any of the liability, while creating predictable, renewable revenue streams and optimizing operational efficiency.
Evolution is hard work. It’s also a work in progress. Focusing on your customers’ needs will keep your business aligned with the path toward the future instead of the road to extinction.
Patricia Ames is president and senior analyst for BPO Media, which publishes The Imaging Channel and Workflow magazines. As a market analyst and industry consultant, Ames has worked for prominent consulting firms including KPMG and has more than 15 years experience in the imaging industry covering technology and business sectors. Ames has lived and worked in the United States, Southeast Asia and Europe and enjoys being a part of a global industry and community.